Corporate governance is an established set of rules, procedures and practices that companies use to manage themselves. The framework of governance establishes the checks and balances that hold companies accountable to their employees, shareholders and other stakeholders.
Corporate governance models are different in the modern business world, and they all have a unique effect on the performance of a business. Certain governance models focus more on the stock market, while others are more focused on the company’s clients or its employees.
The primary responsibility of the board is controlling the company’s strategic vision and ensuring the compliance of ethical and legal requirements. The board also has to oversee management and the CEO. This requires active participation by all directors and preparation for board meetings.
A committee structure that is effective lets the board examine and discuss topics more thoroughly than might be possible during full board meetings. The board should decide which committees will be responsible for the functions they are assigned and who will be a part of each committee.
A company’s governance structure should be fair for all its shareholders. This means avoiding actions that favor one shareholder group over one group. Also, it means treating suppliers, vendors and communities with respect.
The role of the board in corporate governance varies by industry and country. In the United States, for example the Securities and Exchange Commission (SEC) has created guidelines for boards in areas such as ESG reporting as well as cybersecurity and governance structures. The SEC’s requirements have been supported by guidance from top global university centers for excellence in leadership and management.